Opinion
No. 5-719 / 05-0803
Filed January 19, 2006
Appeal from the Iowa District Court for Fayette County, Margaret L. Lingreen, Judge.
A custodial parent appeals the district court's allocation of dependent exemptions to the non-custodial parent. REVERSED.
James S. Updegraff, West Union, for appellant.
John W. Hofmeyer, III of Hofmeyer Hanson, P.C., Fayette, for appellee.
Considered by Zimmer, P.J., and Miller and Vaitheswaran, JJ.
A custodial parent appeals the district court's allocation of dependent exemptions to the non-custodial parent on his application to modify a dissolution decree. We reverse.
I. Background Facts and Proceedings
Rebecca and Jamie Weatherbee dissolved their marriage by stipulated decree. Under the decree, Rebecca assumed physical care of the parties' two children, and Jamie incurred a child support obligation of $671 per month. The decree was silent on the question of who would receive the income tax dependent exemptions for the two children.
Jamie petitioned to modify the decree. He sought the dependent exemptions and asked for other relief not at issue here. The district court found that the exemptions would benefit Jamie more than Rebecca, given the parties' respective incomes and the additional credits to which Rebecca was entitled. The court concluded that Jamie should receive the exemptions as long as he was current on his child support and both children were living with Rebecca.
The court found that Jamie had adjusted gross income of $34,465 and Rebecca had adjusted gross income of $13,874.
Rebecca moved to enlarge the findings and conclusions. The court denied the motion and this appeal followed.
Rebecca contends the district court acted inequitably in (1) considering the dependent exemption issue and (2) awarding Jamie the dependent exemptions. In the alternative, she contends the district court should have modified Jamie's child support obligation in light of his receipt of the dependent exemptions. Our review of these issues is de novo. Iowa R. App. P. 6.4.
I. District Court's Consideration of Dependent Exemption Issue
As a preliminary matter, Rebecca maintains that the question of who should receive the dependent exemptions was implicitly considered and decided in the dissolution decree and should not have been modified without a showing of a substantial change of circumstances. Jamie counters that the question "was not decided originally" and "the court need not require a substantial change in circumstances."
The district court sided with Jamie. Citing In re Marriage of Feustel, 467 N.W.2d 261, 264-265 (Iowa 1991), the court stated the issue of the dependency exemption could be addressed "as an adjunct to the original dissolution decree."
Feustel contains language supporting this resolution. 467 N.W.2d at 264-65 (stating equity would be frustrated to strictly apply a modification standard in deciding dependent exemption question, where original decree was silent on this question). Cf. In re Marriage of Funderbunk, 696 N.W.2d 607, 611 (Iowa 2005) (noting proceedings to establish post-secondary education support "are not truly modification actions" and do not require a showing of a substantial change of circumstances). In light of that language, we assume without deciding that Jamie was not required to show a substantial change of circumstances. We proceed to the next question: whether the court acted equitably in allocating the dependent exemptions to him.
In Feustel, the Iowa supreme court found a substantial change of circumstances based on a change in federal tax law. 467 N.W.2d at 265. Therefore, the cited language concerning frustration of equity was dicta.
College support often cannot be determined at the time of a decree. It is, therefore, not a proper subject of modification. In contrast, dependent exemptions are arguably at issue whenever child support is at issue. Accordingly, they should trigger review under the modification standards. See Feustel, 467 N.W.2d at 264 (stating "dependency deductions were a proper subject of modification since they are directly related to the matter of child support allowances.").
Jamie essentially concedes he made no showing of a substantial change of circumstances. At the modification hearing, he was asked if he had the same income as he did at the time of the decree. He testified, "Probably, yeah."
II. Allocation of Dependent Exemptions
The child support guidelines provide:
each parent shall be assigned one personal exemption for the parent. The custodial parent shall be assigned one additional dependent exemption for each mutual child of the parents, unless a parent provides information that the noncustodial parent has been allocated the dependent exemption for such child.
Iowa Ct. R. 9.6(4) (2005). See In re Marriage of Kerber, 433 N.W.2d 53, 54 (Iowa Ct.App. 1988) ("The custodial parent is treated as having furnished over half of the child's support."). This rule became effective on November 1, 2004, several months before the district court entered the modification decree. Under the rule, Rebecca was entitled to the dependent exemptions, as Jamie furnished no information that he had previously been allocated the exemptions for either of the children.
Even if that were not the case, we would be required to apply the current guidelines. See In re Marriage of Shivers, 557 N.W.2d 532, 534 (Iowa Ct.App. 1996) (applying guidelines in effect at time of appeal) ; In re Marriage of Roberts, 545 N.W.2d 340, 343 n. 2 (Iowa Ct.App. 1996) (same).
Application of this rule does not end the inquiry, as the Iowa Supreme Court has recognized that courts have authority to award tax exemptions to a non-custodial parent to "achieve an equitable resolution of the economic issues presented." In re Marriage of Okland, 699 N.W.2d 260, 269 (Iowa 2005) (quoting In re Marriage of Rolek, 555 N.W.2d 675, 679 (Iowa 1996)). Here, an "equitable resolution" does not require departure from the prescription of rule 9.6(4).
Rebecca testified that each child's exemption was worth $3,100. She agreed with her attorney that the two exemptions, when added to her own exemption and the standard deduction, essentially erased a large portion of her tax liability. She stated, "if I don't claim the girls, I don't get any money back, that's the only thing I know about it." Her 2004 federal tax return supports this testimony. If her children's dependent exemptions had not been included, the amount of her tax refund might have decreased.
It is true that Jamie's tax refund for the 2004 tax year may have increased had he been allocated the dependent exemptions. However, given his substantially higher earnings, we are not persuaded that his need for the additional refund dollars was as great as Rebecca's. On this record, we conclude the dependent exemptions should have remained with Rebecca. Cf. In re Marriage of Miller, 475 N.W.2d 675, 679 (Iowa Ct.App. 1991) (modifying decree to give non-custodial parent the dependent exemptions where he was paying "substantial support" and the exemptions were of "minimal benefit" to custodial parent).
Jamie testified that he paid more than $3,600 in federal income taxes for the 2004 tax year. His tax return reveals that this sum was the amount he owed for federal taxes. After subtracting this sum from the $4,323 that was withheld, he actually received a refund of $709.
III. Disposition
In light of our resolution of the dependent exemption issue, we find it unnecessary to address Rebecca's contention that Jamie's child support obligation should have been increased based on his receipt of the dependent exemptions.
We reverse the district court's grant of Jamie's application for modification of the dissolution decree.
REVERSED.
Zimmer, P.J., concurs; Miller, J., specially concurs.
I would come to the same result, but for somewhat different reasons.
The April 2003 decree dissolving the parties' marriage, which incorporated a February 2003 stipulation, contains no provision regarding entitlement to claim the income tax dependency exemptions for the parties' children. Under the provisions of the Internal Revenue Code in effect at that time Rebecca, as the parent having custody for the greater part of the year, would be generally treated as having provided more than one-half of the children's support and was thus entitled to claim the dependency exemptions unless one of three exceptions applied. See generally I.R.C. §§ 151, 152 (2003); see also In re Marriage of Feustel, 467 N.W.2d 261, 263 (Iowa 1991). None of these exceptions applied. See I.R.C. § 152(e).
These provisions of the Internal Revenue Code were amended in 2004, to apply to taxable years beginning after December 31, 2004. See Pub.L. 108-311, 118 Stat. 1178 (2004). However, Rebecca, as the party providing the children's principal place of abode, remained entitled to claim the dependency exemptions unless one of the amended exceptions applied. See generally I.R.C. §§ 151, 152 (2005). None of the amended exceptions applied. See I.R.C. § 152(e).
Under the terms of the decree dissolving the parties' marriage and controlling tax law Rebecca was thus entitled to claim the dependency exemptions for the children both before and after the 2004 amendments to I.R.C. sections 151 and 152. The issue therefore did not remain open to be decided "as an adjunct to the original dissolution decree." In order for Jamie to claim the dependency exemptions he thus was required to seek and secure modification of the decree. This in turn required him to prove a material and substantial change in circumstances. He did not meet his burden to do so.